Directions: Assume that you are purchasing an investment and have decided to invest in a company in the digital phone business. You have narrowed the choice to Digital Plus Corp. and Red Zone, Inc. and have assembled the data necessary (see below). Your strategy is to invest in companies that have low price/earnings ratios but appear to be in good shape financially. Assume that you have analyzed all other factors and that your decision depends on the results of ratio analysis.

Selected Income Statement data for the current year:
	Digital Plus	Red Zone
Net Sales (all on credit)	$ 416,830	$ 497,130
Cost of Goods Sold (COGS)	$ 207,000	$ 259,000
Interest Expense	$ -	$ 17,000
Net Income (NI)	$ 54,000	$ 76,000
Selected Balance Sheet and Market Price Data at the End of the Current Year:
	Digital Plus	Red Zone
Current Assets:
Cash	$ 24,000	$ 15,000
Short-term investments (ST Invmts)	$ 37,000	$ 14,000
Accounts Receivable, net (A/R)	$ 38,000	$ 46,000
Merchandise Inventory (MI)	$ 65,000	$ 99,000
Prepaid Expenses	$ 17,000	$ 14,000
Total Current Assets (CA)	$ 181,000	$ 188,000
Total Assets (TA)	$ 263,000	$ 324,000
Total Current Liabilities (CL)	$ 102,000	$ 95,000
Total Liabilities (TL)	$ 102,000	$ 132,000
Common Stock, $1par (10,000 shares)	$ 10,000
Common Stock, $2par (16,000 shares)		$ 32,000
Total Stockholders' Equity (TSE)	$ 161,000	$ 192,000
Market Price per Share of Common Stock	$ 86.40	$ 104.50
Dividends Paid per Common Share	$ 1.20	$ 1.00
Selected Balance Sheet Data at the Beginning of the Current Year:
	Digital Plus	Red Zone
Balance Sheet:
Accounts Receivable, net	$ 42,000	$ 51,000
Merchandise Inventory	$ 81,000	$ 89,000
Total Assets	$ 259,000	$ 275,000
Common Stock, $1 par (10,000 shares)	$ 10,000
Common Stock, $2 par (16,000 shares)		$ 32,000

Required:

(1) Compute the ratios below for both companies for the current year. To obtain credit, please use cell referencing for computing each ratio. Do not type in any of the numbers from the other page (other than the number of shares for part (e)); reference the cells and use formulas whenever possible.

(2) Decide which company's stock better fits your investment strategy. Be sure to back up your recommendations with facts from requirement (1). Use the text box below to write up your answer to this requirement. (For Question 1)

(1)	Ratios	Formula	Format	Digital Plus	Red Zone
(a)	Acid-test ratio	Cash + ST Invmts + AR/ CL	As a number, 2 decimals
(b)	Inventory turnover	COGS / Average Inventory	As a number, 2 decimals
(c )	Days' sales in receivables	365 / A/R Turnover	As a number, 0 decimals				Hint: A/R Turnover = Credit Sales / Ave. A/R
(d)	Debt ratio	TL/TA	As a percent, 2 decimals
(e)	Earnings per share (EPS)	(NI - Pref. Divid)/WACS	As a number, 2 decimals
(f)	Price/earnings ratios	Market Price / EPS	As a number, 2 decimals
(g)	Dividend Payout	Dividend per share/EPS	As a percent, 2 decimals